PROOF-OF-STAKE CONSENSUS

MECHANISMS FOR FUTURE

BLOCKCHAIN NETWORKS:
FUNDAMENTALS, APPLICATIONS
AND OPPORTUNITIES

S.RAGHUNANDAN REDDY
III B.TECH (CSSE-B)
 PROOF-OF-STAKE
CONSENSUS MECHANISMS
FOR FUTURE BLOCKCHAIN
NETWORKS:
FUNDAMENTALS,
APPLICATIONS AND
OPPORTUNITIES
ABSTRACT
The rapid development of blockchain technology and their numerous

emerging applications has received huge attention in recent years. The

distributed consensus mechanism is the backbone of a blockchain network. It

plays a key role in ensuring the network’s security, integrity, and

performance. Most current blockchain networks have been deploying the

proof-of-work consensus mechanisms, in which the consensus is reached

through intensive mining processes. However, this mechanism has several

limitations, e.g., energy inefficiency, delay, and vulnerable to security threats.

To overcome these problems, a new consensus mechanism has been

developed recently, namely proof of stake, which enables to achieve the

consensus via proving the stake ownership. This mechanism is expected to

become a cutting-edge technology for future blockchain networks. This is

dedicated to investigating proof-of-stake mechanisms, from fundamental

knowledge to advanced proof-of-stake-based protocols along with

performance analysis, e.g., energy consumption, delay, and security, as well as

their promising applications, particularly in the field of Internet of Vehicles.

The formation of stake pools and their effects on the network stake

distribution are also analyzed and simulated. The results show that the ratio

between the block reward and the total network stake has a significant impact

on the decentralization of the network. Technical challenges and potential

solutions are also discussed. 

INTRODUCTION
In the simplest terms, Blockchain can be described as a data structure that holds

transactional records and while ensuring security, transparency, and

decentralization. You can also think of it as a chain or records stored in the forms

of blocks which are controlled by no single authority. A blockchain is a distributed

ledger that is completely open to any and everyone on the network. Once an

information is stored on a blockchain, it is extremely difficult to change or alter it.

 Each transaction on a blockchain is secured with a digital signature that proves its

authenticity. Due to the use of encryption and digital signatures, the data stored on

the blockchain is tamper-proof and cannot be changed.

 Blockchain technology allows all the network participants to reach an agreement,

commonly known as consensus. All the data stored on a blockchain is recorded

digitally and has a common history which is available for all the network

participants. This way, the chances of any fraudulent activity or duplication of

transactions is eliminated without the need of a third-party.

EXAMPLE OF BLOCK CHAIN
consider an example where you are looking for an option to send some

money to your friend who lives in a different location. A general option that you

can normally use can be a bank or via a payment transfer application like PayPal

or Paytm. This option involves third parties in order to process the transaction

due to which an extra amount of your money is deducted as transferring fee.

Moreover, in cases like these, you cannot ensure the security of your money as it

is highly possible that a hacker might disrupt the network and steal your money.

In both the cases, it is the customer who suffers. This is where Blockchain comes

in.

Instead of using a bank for transferring money, if we use a blockchain in such

cases, the process becomes much easier and secure. There is no extra fee involved

as the funds are directly processed by you thus, eliminating the need for a third

party. Moreover, the blockchain database is decentralised and is not limited to any

single location meaning that all the information and records kept on the

blockchain are public and decentralized. Since the information is not stored in a

single place, there’s no chance of corruption of the information by any hacker.

 LITERATURE SURVEY

F. Tschorsch and B. Scheuermann

With the help of cryptographic hash functions, digital signatures, and

distributed consensus mechanisms, once a record enters the database, it
cannot be altered without the consensus of the other network participants.

 W. Wang, P. Hu, P. Wang, Y. Wen, and D. I. Kim

Beyond cryptocurrencies, blockchain applications have also been

emerging in various areas, such as finance, healthcare, military, and
Internet-of-Things (IoT) networks.

 I. Bentov, C. Lee, A. Mizrahi, and M. Rosenfeld

The Peercoin protocol discussed above can be considered to be a hybrid

consensus mechanism, which utilizes PoS to reduce the high
computational requirement of PoW. Another typical example is the Proof-
of-Activity (PoA) protocol .
 BLOCKCHAIN WORKING?
A blockchain is a chain of blocks that contain data or information. Despite being

discovered earlier, the first successful and popular application of the Blockchain
technology came into being in the year 2009 by Satoshi Nakamoto. He created the
first digital cryptocurrency called Bitcoin through the use of Blockchain
technology.

 Each block in a blockchain network stores some information along with the hash of

its previous block. A hash is a unique mathematical code which belongs to a

specific block. If the information inside the block is modified, the hash of the block
will be subject to modification too. The connection of blocks through unique hash
keys is what makes blockchain secure.

 While transactions take place on a blockchain, there are nodes on the network that

validate these transactions. In Bitcoin blockchain, these nodes are called as miners

and they use the concept of proof-of-work in order to process and validate

transactions on the network. In order for a transaction to be valid, each block must

refer to the hash of its preceding block. The transaction will take place only and

only if the hash is correct. If a hacker tries to attack the network and change

information of any specific block, the hash attached to the block will also get

modified.

 The breach will be detected as the modified hash will not match with the original

one. This ensures that the blockchain is unalterable as if any change which is made

to the chain of blocks will be reflected throughout the entire network and will be

detected easily.
 While making a
transfer, the sender
uses their private key Upon solving the
A blockchain network and announces the puzzle first, the miner
makes use of public transaction information receives rewards in the
and private keys in over the network. A form of bitcoins. Such
order to form a digital block is created kind of problems is
signature ensuring containing information referred to as proof-of-
security and consent. such as digital work mathematical
signature, timestamp, problems.
and the receiver’s
public key.

Once the majority of

nodes in the network
come to a consensus
This block of
and agree to a common
Once the authentication information is
is ensured through solution, the block is
broadcasted through
time stamped and
these keys, the need for the network and the
authorization arises. added to the existing
validation process
blockchain. This block
starts.
can contain anything
from money to data to
messages.

Miners all over the

Blockchain allows network start solving
After the new block is
participants of the the mathematical
added to the chain, the
network to perform puzzle related to the
existing copies of
mathematical transaction in order to
blockchain are updated
verification and reach a process it. Solving this
for all the nodes on the
consensus to agree on puzzle requires the
network.
any particular value. miners to invest their
computing power.
FEATURES OF BLOCK CHAIN

Decentralised

Blockchains are decentralized in nature meaning that no single person or group

holds the authority of the overall network. While everybody in the network has

the copy of the distributed ledger with them, no one can modify it on his or her

own. This unique feature of blockchain allows transparency and security while

giving power to the users.

Peer-to-Peer Network

With the use of Blockchain, the interaction between two parties through a peer-to-

peer model is easily accomplished without the requirement of any third party.

Blockchain uses P2P protocol which allows all the network participants to hold an

identical copy of transactions, enabling approval through a machine consensus.

For example, if you wish to make any transaction from one part of the world to

another, you can do that with blockchain all by yourself within a few seconds.

Moreover, any interruptions or extra charges will not be deducted in the transfer.

Immutable

The immutability property of a blockchain refers to the fact that any data once

written on the blockchain cannot be changed. To understand immutability,

consider sending email as an example. Once you send an email to a bunch of

people, you cannot take it back. In order to find a way around, you’ll have to ask

all the recipients to delete your email which is pretty tedious. This is how

immutability works.
Once the data has been processed, it cannot be altered or changed. In case of

the blockchain, if you try to change the data of one block, you’ll have to change

the entire blockchain following it as each block stores the hash of its preceding

block. Change in one hash will lead to change in all the following hashes. It is

extremely complicated for someone to change all the hashes as it requires a lot

of computational power to do so. Hence, the data stored in a blockchain is non-

susceptible to alterations or hacker attacks due to immutability.

Tamper-Proof

With the property of immutability embedded in blockchains, it becomes easier

to detect tampering of any data. Blockchains are considered tamper-proof as

any change in even one single block can be detected and addressed smoothly.

There are two keyways of detecting tampering namely, hashes and blocks.

As described earlier, each hash function associated with a block is unique. You

can consider it like a fingerprint of a block. Any change in the data will lead to

a change in the hash function. Since the hash function of one block is linked to

next block, inorder for a hacker to make any changes, he/she will have to

change hashes of all the blocks after that block which is quite difficult to do.
BLOCK CHAINS CAN BE CLASSIFIED MAJORLY

Public Block Chain

Private Block Chain

Both Public and Private blockchain have peer-to-peer decentralized

networks.

All the participants of the network maintain the copy of the shared

ledger with them.

The network maintains copies of the ledger and synchronizes the

latest update with the help of consensus.

The rules for immutability and safety of the ledger are decided and

applied on the network so as to avoid malicious attacks.

PUBLIC BLOCK CHAIN
 As the name suggests, a public blockchain is a permission less ledger and can be

accessed by any and everyone. Anyone with the access to the internet is eligible to

download and access it. Moreover, one can also check the overall history of the

blockchain along with making any transactions through it. Public blockchains

usually reward their network participants for performing the mining process and

maintaining the immutability of the ledger. An example of the public blockchain is

the Bitcoin Blockchain.

 Public blockchains allow the communities worldwide to exchange information

openly and securely. However, an obvious disadvantage of this type of blockchain

is that it can be compromised if the rules around it are not executed strictly.

Moreover, the rules decided and applied initially have very little scope of

modification in the later stages.

PRIVATE BLOCK
CHAIN
Contrary to the public blockchain, private blockchains are the ones which are


shared only among the trusted participants. The overall control of the network

is in the hands of the owners. Moreover, the rules of a private blockchain can

be changed according to different levels of permissions, exposure, number of

members, authorization etc.

Private blockchains can run independently or can be integrated with other

blockchains too. These are usually used by enterprises and organizations.

Therefore, the level of trust required amongst the participants is higher in

private blockchains.
 ALGORITHMS TO VALIDATE THE
TRANSACTIONS IN BLOCK CHAIN

1. Proof of Work

2. Proof of Stake

Power Of Work

Power of Stake
Proof Of
Work
BREAKING POINT
 Needs computing power i.e. high electricity usage

 Higher Rewards are given to people with better and more equipments:

Higher hash rate , Higher the reward

 Mining Pools make block chain more centralised than

de-centralised : miners create a mining pool to combine hash power and

share the profit evenly
Proof Of
Stake
MERITS

Process Integrity

Due to the security reasons, this program was made in such a way that any block
or even a transaction that adds to the chain cannot be edited which ultimately
provides a very high range of security.

Traceability

The format of Blockchain designs in such a way that it can easily locate any
problem and correct if there is any. It also creates an irreversible audit trail.

Security

Blockchain technology is highly secure because of the reason each and every
individual who enters into the Blockchain network is provided with a unique
identity which is linked to his account. This ensures that the owner of the account
himself is operating the transactions. The block encryption in the chain makes it
tougher for any hacker to disturb the traditional setup of the chain

Faster processing

Before the invention of the blockchain, the traditional banking organization take a
lot of time in processing and initiating the transaction but after the blockchain
technology speed of the transaction increased to a very high extent. Before this,
the overall banking process takes around three days to settle but after the
introduction of Blockchain, the time reduced to nearly minutes or even seconds.
DEMERITS

Power Use

The consumption of power in the Blockchain is comparatively high as in a

particular year the power consumption of Bitcoin miners was alone more than

the per capita power consumption of 159 individual countries. Keeping a real-

time ledger is one of the reasons for this consumption because every time it

creates a new node, it communicates with each and every other node at the

same time.

Cost

As per the studies as an average cost of the Bitcoin transaction is $75-$160

and most of this cost cover by the energy consumption. There are very fewer

chances that this issue we can resolve by the advancement in the technology.

As the other factor that is the storage problem might be covered by the energy

issues cannot be resolved.

Uncertain regulatory status

In each and every part of world modern money has been created and

controlled by the central government. It becomes a hurdle for Bitcoin to get

accepted by the preexisting financial institutions.